European High-Yield Bond Sales Hit Record €23 Billion in June 2025

In June 2025, European high-yield bond sales reached a record €23 billion, surpassing the previous high of €18 billion set in June 2021. This surge is attributed to declining borrowing costs and increased investor demand, driven by capital shifting from U.S. markets due to concerns over President Donald Trump's trade policies and rising government debt.

The European high-yield market, often referred to as the "junk bond" market, has matured over the years, demonstrating improved credit quality and resilience to external shocks. The record issuance in June 2025 reflects a significant shift in investor sentiment. Concerns over U.S. economic policies, particularly unpredictable trade measures and escalating government debt under President Donald Trump's administration, have prompted investors to reallocate capital to European markets. This influx has led to consistent inflows into European high-yield bond funds over seven consecutive weeks, enabling companies previously excluded from capital markets to access funding.

Companies like Flora and Czechoslovak Group have capitalized on favorable market conditions to issue bonds at significantly reduced interest rates. Flora achieved a rare issuance for a triple C-rated issuer. Even companies with past financial difficulties and complex financial structures are finding eager investors. Notably, Carnival priced €1 billion in new bonds to refinance dollar-denominated debt. Additionally, complex financial instruments, such as payment-in-kind bonds, are gaining investor interest.

The European Central Bank's (ECB) monetary policies have played a role in creating a favorable environment for bond issuance. The ECB's Financial Stability Review in May 2025 highlighted that while rollover costs had been falling, they have turned again and increased for lower-rated credit, in line with the widening of corporate spreads. This environment has encouraged companies to issue high-yield bonds to take advantage of lower borrowing costs.

Despite the surge in issuance, default rates in the European high-yield market have remained relatively low. The global high-yield default rate decreased to 4.1% in April from 4.5% in March, with European defaults at 2.1%. This stability is attributed to cautious balance sheet management by companies following the COVID-19 pandemic and a focus on debt reduction.

The European high-yield market has outperformed its U.S. counterpart in recent months. While European high-yield bonds have delivered strong returns, the U.S. market has faced challenges due to economic uncertainties and policy concerns. This divergence has made European high-yield bonds particularly attractive to global investors seeking higher yields and stability.

The surge in high-yield bond issuance has several implications:

• Corporate Financing: Companies with lower credit ratings now have improved access to capital, enabling expansion and investment that might have been previously unattainable.

• Investor Behavior: The shift of capital from U.S. to European markets indicates a broader trend of investors seeking stability amid geopolitical uncertainties.

• Economic Growth: Increased corporate investment can stimulate economic growth, potentially leading to job creation and enhanced economic activity in the region.

The record-breaking €23 billion in European high-yield bond sales in June 2025 underscores a significant shift in global investment patterns. As U.S. economic policies introduce volatility, European markets are benefiting from increased investor confidence and demand. This trend not only provides companies with greater access to capital but also highlights Europe's growing prominence in the global financial landscape.